Inside Wall Street: Wal-Mart going upscale

The world's largest retailer should attract more customers by partnering with American Express on prepaid cards.

By Gene Marcial Oct 15, 2012 2:51PM

Wal-Mart store in Secaucus, New Jersey, Jin Lee, Bloomberg via Getty ImagesYou've got to hand it to Wal-Mart Stores (WMT). It has done something novel -- and somewhat classy -- for its discount shoppers. And, of course, something that should make it more profitable.

 

The global retailing giant wants to offer its bargain-oriented core customers a shot at upward mobility by giving them entry into the world of nonbank debit cards. In partnering with blue-chip American Express (AXP), Wal-Mart is giving a big part of its low-income customers who shun banks access to convenient spending through prepaid cards.

 

The cards work like debit cards, although with the AmEx-Wal-Mart Bluebird cards, you don't need money in the bank to have one. You load up the card with cash and then use it like a debit card. The card makes it easier for people without bank or checking accounts to go shopping. 

 

The world of nonbanking prepaid-card customers represents a $45 billion market, according to some financial advisory groups, which Wal-Mart could tap to its advantage. For Wal-Mart, it's practically a new business waiting to be profitably developed.

 

American Express and Wal-Mart have provided little details about their partnership, so Wall Street has yet to estimate what it means to the top and bottom lines of both companies. But in a real sense, what it means for both is an additional market and new customers.

 

Little wonder, then, that shares of Wal-Mart look like they are on a steady escalator upward, driven not only by the company's impressive performance in its latest quarter but enhanced by the emergence of new market opportunities.

 

Also adding to the increasingly positive Wal-Mart picture is its decision to provide same-day delivery services for its customers from its neighborhood stores, which is a direct challenge to Amazon's (AMZN) treasured territory -- and a measured expansion into e-commerce.

 

Wal-Mart's stock rose to a new high of $77.14 on Monday, way up from $57 not too long ago -- on April 24, 2012. Some analysts see the stock gaining another 10 to 20 points in 12 months, even before more specifics are announced about the prepaid cards.

 

Analyst Robert S. Drbul of Barclays Capital, who rates Wal-Mart "overweight," notes that the company continues to drive growth, leverage and returns "with a new focus on momentum, discipline and investment." He expects 2013 to be another growth year with sales rising 5% to 7%, based on square footage increase of 3% to 4%, which implies $23 billion to $33 billion in incremental sales and 36 to 40 million new square feet of store space.

 

One of Wal-Mart's latest innovative moves is the small store format. These stores are smaller in size and square footage, but show very good customer traffic. "Neighborhood markets are a very productive format, with comps (comparative sales) up 5% in the first half of 2012, approximately twice that of the rest of the U.S. store fleet," Drbul points out.

 

Wal-Mart continues to gain points on Wall Street because of its efforts to please millions of customers with its steady value pricing, as well as efforts to reassure its shareholders by providing solid returns.

 

"We expect Wal-Mart to pursue a balanced approach toward increasing shareholder value through its sustainable long-term growth in its proven business model," says Drbul. And "we continue to be impressed with its disciplined expense management and strategies in place to maintain positive comps," he adds.

 

The analyst, who has a 12-month price target of $80 to $85 a share for Wal-Mart, is confident the company has the potential to build on current momentum in positive traffic trends and leverage expenses to offset any gross margin pressure.

 

The price target of $85 is about 15 times his 2013 earnings estimate of $5.20 a share, on sales of $498 billion, up from estimated 2012 profits of $4.90 a share on $474.2 billion. For 2014, he forecasts earnings of $5.85 on sales of $523.5 billion.

 

Analyst David A. Schick of investment firm Stifel Nicolaus, who rates Wal-Mart a "buy," has a price target of $83 a share. He says it could potentially be trading at 15 times estimated earnings of $6 a share a year from now -- that is, $90 a share.

   

Tags: AXPWMT
102Comments
Oct 16, 2012 9:03PM
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I don't give Wal-Mart a lot of high marks,the way they treat  their employees. I hope they get a strong union, american  express was the rolls royce of credit cards now they  are at the bottom of the pack the stockholders are just as greedy as the Wal-Mart family.
Oct 16, 2012 7:33PM
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do you have to cut off your shirt sleeves to shop at Wal-Mart and crap your pants and use food stamps
Oct 16, 2012 6:42PM
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Walmart/upscale is an oxymoron, and therefore a nonexistent possibility. 
Oct 16, 2012 6:13PM
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Parking at large big box stores sucks because Americans are lazy and they all want to park right at the door, sometimes on the sidewalk.
Oct 16, 2012 6:11PM
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This is hardly new. Green dot debit cards, among others  have been sold there for years!
Oct 16, 2012 5:04PM
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It may turn into ' Midas Touch' or ' Frog Kiss'
Oct 16, 2012 5:04PM
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Load up a boat load of cash on this Wal-Mart debit card? Isn't that the problem people don't have a boat load of cash to load into it?
Oct 16, 2012 4:42PM
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I haven't spent one cent in a Wal-Mart in over two years, and I hope I never do again! 
Oct 16, 2012 4:21PM
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The last time I was at a Walmart the shelves were half empty, and the store was a mess!  When I tried to get help from an employee they couldn't speak english!  I left empty handed.  I will not waste my time and money at Walmart!  I can find what I need for close to the same price at other stores, i.e..Target or Best Buy for electronics.  I have compared prices and will not endure the nastiness of a Walmart for a few pennies. 
Oct 16, 2012 4:03PM
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I JUST USE GREENDOT VISA CARD, FROM GREENDOT.COM, THEY DO CHARGE $4.95 TO LOAD YOUR MONEY ON YOUR CARD OR FREE IF IT IS A DIRECT DEPOSIT. I CHOOSE THAT BECAUSE AMERICAN EXPRESS IS NOT EXCEPTED EVERYWHERE LIKE VISA IS BECAUSE OF FEES.
Oct 16, 2012 3:49PM
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Wal-Mart should be boycotted for the way they treat their employees. This company is the epitome of greed.
Oct 16, 2012 3:35PM
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I am just not a Wal-Mart fan at all.  They would have to do a lot of changes to make me think differently.  There are too many options for shopping to put yourself through the Wal-mart ringer.
Oct 16, 2012 3:23PM
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I don't know of any employer that isn't watching their bottom line.  Every business has something the public won't like.  Same old story.  You can advance with Wal-Mart if you apply yourself.

Just what does John Q Public expect anymore?   Go out and vote if you're serious.

Oct 16, 2012 3:09PM
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oh and  the 875 thousand is just at our store....
Oct 16, 2012 3:07PM
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I work at Wal-Mart part time. It is my second job. I work at a bank full time. I can't live off either job and BARELY off of both. I'm not on any assistance and yes Wal-Mart can be horrible to work for. It could never be my full time job. Even if your status is full time you are not guaranteed any hours or part time either. Its whatever they give you. I got 12 hours for the last 2 weeks in a  row. They do hire lots of people and give them little hours so they can save on benefits. However the money card offered to employees is free to load and unload. You can also have it direct deposited to a bank account. And what other stores do you go in with 25 registers available? just becasue there arent 25 cashiers doesn't mean it's awful! If you are inthat much of a hurry come do your shopping when you have time. Good grief. MOst of the time there are 3 or 4 cashiers on duty. again where else do you go with that many checkouts open? And where else do you go that has pretty much everthign you could ever need? I don't pretend to love Wal Mart, but everone I know that works there that doesn't have more than one job is on food stamps. But so are 85% of the customers. Including the retired nfl football player I saw showing off his superbowl ring and using his ebt card. and the people who come in and lie about how much an item is at another store so they can price match it. thats stealing from wal mart and from the employees. We do get profit sharing checks if the bottom line is good. even part time i got one for around $250 once. A long time ago. the last one was like $20. last year alone our shrink (crap you people stole from wal mart ) was over 875 thousand dollars. And wal mart employees work hard. You get 3 points before you get in trouble. 7 minutes late is a point. calling in sick is a point. whether its you or a family member or flood or tornado doesnt matter. and if you have time to cover it its still a point. I get 20 hours a week and after a year got 8 hours time to take. 3 poins in 6 months. so if jan 1 i am sickmarch 1st my relative dies june 1 i have a wreck I get in trouble. then june 2 1st pouint falls off. next week tornado hits back to three point in trouble big time. you can get fired for that.!!!! not eveyone at wal mart is an idoit or a brainchild , and let me tell you the customers are not all that different either...I've only been there 2 1/2 years but I'm pretty sure since Sam died its gone downhill.
Oct 16, 2012 2:52PM
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walmart just agreed to pay for spinal and heart surgeries for its employees and family members at six care centers in the US
Oct 16, 2012 2:51PM
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Walmart just agreed to pay for major medical for their employees and families who got thru heart surgeries and splinal surgries  at no cost to the employee....
Oct 16, 2012 2:16PM
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this is a great disguise...classy? of course not! is a business decision that would benefit both walmart and amex...how? by the amount of fees they are going to be racking in from "customers" that would pay a "small convenience fee" everytime they load money into the card.... stick to cash anyway or if you need a card and have direct deposit, find a credit union that would not charge you fees on a checking/debit account as long as you have direct deposit or keep a small balance in the account

Oct 16, 2012 2:04PM
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